Hammering Nails Construction has a CBA (collective bargaining agreement) with Local 1 of the United Brotherhood of Widgetmakers (“Union”). After a pension fund audit, Hammering Nails received a letter claiming it owed approximately $50,000 in additional pension contributions based on unreported “bonus” payments. Does the Company have a problem?

Under the CBA, Hammering Nails must pay pension and welfare contributions based on the “hours worked” by member employees. Hammering Nails pays the hourly rate established in the CBA for all hours worked and pays pension and welfare contributions based on those hours. In addition, however, to keep workers happy, Hammering Nails pays “bonuses” to employees following a particularly busy week or month. Hammering Nails did not make contributions based on the bonus payments.

However, under the CBA, employer contributions to the Union pension fund are based on the “hours worked” by employees. Specifically, the CBA requires a pension contribution of $0.63 for every hour worked. Hammering Nails has made the required contribution for all hours worked (and paid). The pension fund audit calculated owed pension contributions by converting bonus payments to so-called hours worked. The CBA, however, does not require additional contributions based on bonuses. Rather, the CBA specifically states that contributions must be paid for the hours worked. Not only were the bonuses not guaranteed compensation, but, in addition, the bonuses were not based on employees’ work hours. Employees never had a contractual right to receive a bonus – the decision was always within the Company’s discretion. As a result, these bonuses were not “wages” paid based on hours worked, and the Company should not owe additional pension contributions based on the bonus compensation.